If Warren Buffett had a TFSA, it would be worth $394.1 million

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Most of us dream of becoming rich one day. Whether it’s through hard work, running a business, climbing the corporate ladder or investing in stock markets, what we all have in common is the hunt for the best ways to save and compound our wealth to make getting rich an achievable goal.

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If you’re an investor, then the approach you use to getting closer to your money goal is investing in stock markets and good quality common shares. Even Warren Buffett, one of the greatest investors of all time, had that dream, and he had it from the age of seven when he was inspired by a book he borrowed from the library titled One Thousand Ways to Make $1,000 by Frances Minaker. What sets Buffett apart from other investors is his ability to take words and make them into action — namely, his drive since childhood to make money coupled with his love of math, good stock picking ability, and most of all, patience to see the fruits of his labour over the long term.

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Born in 1930 in Omaha, Neb., Buffett entered the stock market at age 11, using US$114.75 of his savings to buy three shares of Cities Service Preferred shares, a natural gas company that no longer exists. Buffett never disclosed how much money he made with those initial trades, but he’s used the story several times throughout the years to show how a US$114.75 put into a solid investment could return a small fortune over a lifetime. In fact, the numbers show that, had Buffett put his initial investment into the S&P 500 index in 1941, with dividends reinvested it would today be worth over US$1 million.

His point was that you didn’t have to be a genius to make money. You just needed to be patient and hold a good investment for the long term. And Buffett believes anyone can do what he did.

For Canadians, that’s easier than ever thanks to the tax-free savings account (TFSA), which is a registered investment account that allows individuals over age 18 to save and invest money tax free. There are annual contribution limits set each year and you can carry forward any unused contribution space. For 2025, the TFSA contribution limit will be $7,000, bringing the cumulative lifetime amount to $102,000. (Note: If you’re younger than 33, these values will be different. Check here for your personal contribution and carry-forward limits as well as other TFSA details.)

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Buffett made most of his money through Berkshire Hathaway, a company he first invested in in 1962 and then gained control over in 1965, turning it into his primary investment vehicle. Since then, Berkshire’s value has grown at an unbelievable compound annual rate of 19.8 per cent.

I was curious: How much would Warren Buffett have accumulated in a TFSA, if he had had the option of using one and followed the same rules Canadians follow today?

To find out, I made some assumptions. For the years 1962 through 1976, I plugged in the historic TFSA contribution limits from 2009 to 2024 and adjusted them for inflation, assuming Buffett had invested the full amount every year. For the years 1977 to 2024, I assumed inflation adjusted amounts of $7,000, adjusted for each respective year. For instance, in 1977, that inflation adjusted contribution limit number would have been $1,347.75, for 1978, it would have been $1,418.53, and so on to 2024.

The result? Given the annual average investment return on Berkshire shares of 19.8 per cent over those 62 years, Buffett would have turned $203,010 of real dollar contributions into $394.1 million. Hugely impressive.

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And remember, this represents only a small portion of Buffett’s total wealth because, apart from the TFSA limits, he would have been investing his other millions in the U.S. stock market, as well. As of October 2024, Buffett’s total net worth was close to US$150 billion.

If Buffett’s theoretical TFSA return seems high, consider this: Investing the current limit of $7,000 each year for 62 years at Buffett’s rate of return of 19.8 per cent would yield nearly $3.1 billion, an astronomical sum.

Getting rich seems easy, right? But Buffett’s second rule of getting rich was just as important as the numbers. He once famously said, “The difference between successful people and really successful people is that really successful people say no to almost everything.” What did he mean by that? It’s easy to explain if you remember that Buffett believed in Sturgeon’s Law, which holds that “90 per cent of everything is crap” and you should use that guide when making decisions. Buffett interpreted this to mean that 90 per cent of financial marketing and 90 per cent of your own thoughts are crap. This was Buffett’s way of explaining how buy-and-hold is the key to wealth, once you’ve made the original buy decision for the right reasons. Don’t let daily stock news or your own over-zealous emotions steer you from the right investment path.

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Today, Canadians have the opportunity to build wealth the way Buffett did, simply by buying units of a broad-based index fund inside a TFSA and holding them for the long term, meaning 30 years or more. Though you will be hard-pressed to match Berkshire Hathaway’s annual returns, if all goes well and stocks perform near their long-term historical averages, the outcomes can be eye-opening.

This is my best estimate of how Buffett would have optimized his TFSA. Do you have thoughts on what he might have done, or a TFSA strategy or success story you’d like to share? Drop us an email at wealth@postmedia.com

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